DCIT CENT. CIR. - 38, MUMBAI V. M/s. EXCEL INDUSTRIES LTD., MUMBAI

ITA 2841/MUM/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62576 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 29-05-2012
• Assessment Year: 2000-2001
• Appeal Filed On: 12-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B JAYA KUMAR; M MURALI
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Earning of tax free income; Retrospective amendment; Notional interest; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 80HHC; 14A; 80IB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.2825/MUM/2007 ASSESSMENT YEAR: 2000-2001 EXCEL INDUSTRIES LTD., 184-187, S.V.ROAD, JOGESHWARI (W), MUMBAI. PAN NO.AAACE 2488 F DCIT, CENT. CIR.-38, MUMBAI-20. APPELLANT VS. RESPONDENT AND ITA NO.2841/MUM/2007 ASSESSMENT YEAR: 2000-2001 DCIT, CENT. CIR.-38, MUMBAI- 20. EXCEL INDUSTRIES LTD., 184-187, S.V.ROAD, JOGESHWARI (W), MUMBAI. PAN NO.AAACE 2488 F APPELLANT VS. RESPONDENT AND ITA NO.532/MUM/2009 ASSESSMENT YEAR: 2003-2004 EXCEL INDUSTRIES LTD., 184-187, S.V.ROAD, JOGESHWARI (W), MUMBAI. PAN NO.AAACE 2488 F DCIT, CENT. CIR.-38, MUMBAI-20. APPELLANT VS. RESPONDENT AND ITA NO.671/MUM/2009 ASSESSMENT YEAR: 2003-2004 DCIT, CENT. CIR.-38, MUMBAI- 20. EXCEL INDUSTRIES LTD., 184-187, S.V.ROAD, JOGESHWARI (W), MUMBAI. PAN NO.AAACE 2488 F APPELLANT VS. RESPONDENT AND ITA NO.1622/MUM/2009 ASSESSMENT YEAR: 2004-2005 EXCEL INDUSTRIES LTD., 184-187, S.V.ROAD, JOGESHWARI (W), MUMBAI. PAN NO.AAACE 2488 F DCIT, CENT. CIR.-38, MUMBAI-20. APPELLANT VS. RESPONDENT ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 2 APPELLANT-DEPARTMENT BY : MR.KIRIT KAMDAR & MS. SAISUDHA MULTANI RESPONDENT-ASSESSEE BY : MR. B.JAYA KUMAR & MR. M. MURALI DATE OF HEARING : 29 TH MAY 2012 DATE OF PRONOUNCEMENT : 15 TH JUNE, 2012 O R D E R PER AMIT SHUKLA (J.M.) : THESE ARE BUNCH OF CROSS APPEALS FILED BY THE ASSESSEE AND THE DEPARTMENT FOR THE ASSESSMENT YEARS 2000-2001, 2003-2004 & 2004- 2005, WHEREIN MOST OF THE ISSUES AR E COMMON AND, THEREFORE, FOR THE SAKE OF CONVENIENCE, ALL THESE APPEALS ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2 . ITA NO.2825/MUM/2007 (AY 2000-01)(BY ASSESSEE) : GROUND NO.1 RELATES TO DISALLOWANCE OF INTEREST PAID AT ` .64,66,850/-. THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS GIVEN LOANS AND ADVANCES TO ITS TWO SUBSIDIARIES, NAMELY, KAMALIJYOT IN VESTMENTS PVT. LIMITED AND WEST COST OXYGEN LIMITED AT AN INTEREST RATE OF 6% ONLY. IT WAS ALSO NOTED THAT THE INTEREST EXPENDITURE OF THE ASSESSEE DURING THE RELEVANT YEAR WAS AT ` .23,60,08,729/- ON TOTAL SECURED AND UNSECURED LOAN OF ` .173,97,86,825/-, WHICH IN CLUDES THE INTEREST PAYMENT ON DEBENTURES OF ` .11 CRORES AT THE RATE OF 19%. THE ASSESSEE BEFORE THE ASSESSING OFFICER SUBMITTED THAT THE LOANS WE RE GIVEN OUT OF THE FUNDS GENERATED BY THE COMPANY FROM THE PROFITS FO R THE EARLIER YEARS AND, THEREFORE, NO DIFFERENTIAL INTEREST SHOULD BE ADDED IN RESPECT OF THE LOANS GIVEN TO ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 3 THE SUBSIDIARY COMPANIES. THE ASSESSING OFFICER HOWEVER REJECTED THE EXPLANATION AND HELD THAT THE SIMILAR ADDITION MADE IN THE EARLIER ASSESSMENT ALSO, WHEREIN THE DIFFERENCE OF 13% INTEREST WAS ADDED. LEARNED CIT(A) RELYING UPON THE EAR LIER ORDERS FOR THE ASSESSMENT YEARS 1995-96 AND 1998-99 ALSO CONFIRMED THE SAID DISALLOWANCE. 3. BOTH THE PARTIES FAIRLY AGREED THAT THIS ISSUE HAS COME UP FOR CONSIDERATION BEFORE THE ITAT IN THE ASSESSMENT YEAR 1996-97, 1997- 98, 1998-99 AND 1999-2000, WHEREIN TH IS ISSUE HAS BEEN RESTORED BACK TO THE ASSESSING OFFICER. THE RE LEVANT OBSERVATION OF THE ITAT IN ORDER DATED 4-5-2012 FOR THE A SSESSMENT YEAR 1998-99 AND 1999- 2000, ARE AS UNDER :- 6. GROUND NO.5 : DISALLOWANCE OF INTERE ST OF RS.50,57,260/-. THE ASSESSING OFFICER HAD DISCUSSED THIS ISSUE IN PAGE NO. 7 AND 8 OF THE ASSESSMENT ORDER WHEREIN IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSE SSEE HAD MADE ADVANCES IN THE FORM OF LOANS TO TWO SUBSIDIARY COMPANIES @ 6%. THE SUBSIDIARY COMPANIES ARE WEST COAST O XYGEN LTD. AND KAMAL JYOT INVESTMENT PVT. LTD. THE ASSESS EE-COMPANY PAID INTEREST AT THE AVERAGE RATE OF 16% ON THE BORROWIN GS. INTEREST EXPENSES WERE OF RS.28,39,43,707/-. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN WHY THE DIFFERENCE OF 10% OF INTEREST PAID SHOULD NOT DISALLOWED. AS PER THE ASSESS MENT ORDER NO SATISFACTORY EXPLANATION WAS FURNISHED. THE ASSESSING OFFICER RELIED UPON THE DECISION OF ALLAHABAD HIGH COURT IN T HE CASE OF SARIA SUGAR MILLS P. LTD. (193 ITR 375) AND ALSO ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF PHALTON SU GAR WORKS LTD. 201 ITR 711. THE DISALLOWANCE MADE IN RESPECT OF THE INTEREST ATTRIBUTABLE TO THE FUNDS LENT TO TWO SUBSIDIARY COM PANIES WAS OF RS.47,84,717/-. IT WAS ALSO NOTICED BY THE ASSESSING OFFICER THAT INTEREST FREE LOANS WERE ALSO GIVEN TO M/S. AGROCEL PESTICIDES LTD. RS.17,03,397/- AND M/S. TRULY CREATIVE BU ILDERS RS.20,00,000/-. IT WAS SUBMITTED THAT ADVANCE TO TRULY CREATIVE BUILDERS IS FOR THE PURCHASE OF PROPERTY AND NOT A LOAN. NO SATISFACTORY EX PLANATION WAS FURNISHED REGARDING INTEREST FREE LOANS TO M/S. AGROCE L PESTICIDES LTD. INTEREST @ 16% ATTRIBUTABLE TO THE INTEREST FREE LOANS TO M/S. AGROCEL PESTICIDES LTD. WAS ALSO DISALLOWED. IT AMOUNTS TO RS.2,72,543/-. IT WAS SUBMITTED BY ASSESSEE BEFORE CIT(A) THAT THE LOANS TO THE SUBSIDIARY ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 4 COMPANIES AND THE LOAN TO AGROCEL PE STICIDES LTD. WERE MADE FROM THE ASSESSEES MIXED FUNDS AND NO SPECIFIC BORROWINGS WERE MADE FOR ADVANCING THE SAID LOANS. IT WAS ALSO SUBMITTED THAT THE ENTIRE INTEREST PAYMENT WAS ELIGIBLE FO R DEDUCTION UNDER SECT ION 36(1) (III) OF THE ACT AND THE ASSESSING OFFICE R ERRED IN COMPUTING NOTIONAL INTEREST @ 16% AND DISALLOWING THE EXCESS OF THE SAID AMOUNT OVER THE INTEREST RECEIVED OUT OF INTERE ST PAID. FURTHER, IT WAS SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, VIDE LETTER DATED 20 TH NOVEMBER, 2000, ASSESSEE SUBM ITTED DETAILS OF LOANS TO SUBSIDIARY COMPANIES EXPLAINING THE SOURCES OF FUNDS FROM WHICH THE LOANS WERE GIVEN AND RATE OF INTEREST CHARGED, DETAILS OF ADVANCES RECOVERABLE IN CASH OR IN KIND OR FOR VALUE TO BE RECEIVED ALONG WITH STATEMENT S HOWING DETAILS OF INTEREST RECEIVED. THE ASSESSEE VIDE LETTER DATED 2 ND MARCH, 2001 ALSO FURNISHED A STATEMENT SHOWING NOTIONAL INTEREST AT THE RATE OF 10% ON LOANS GIVEN TO SUBSIDIARY COMPANIES, AS REQUIRED BY THE ASSESSING OFFICER. ON AN APPEAL BEFORE T HE CIT(A), THE LEARNED CIT(A) CONFIRMED THE SAME FOLLOWING T HE ORDERS OF HIS PREDECESSORS. 6.1. IT WAS SUBMITTED THAT THE ISSUE WAS RESTORED TO THE ASSESSING OFFICER IN EARLIER YEAR S AND THE AMOUNT WAS ALLOWABLE FOLLOWING THE PRINCIPLES LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS VS. CIT 288 ITR 1 (S.C.). IT WAS FURTHER SUBMITTED THAT THE AMOUNT OF RS. 17,03,397/- IN RESPECT OF AGROCEL PESTICIDES SHOWN AS SUNDRY LOAN WAS NOT A LOAN BUT REPRESENTS OUTSTANDING AMOUNT IN THE ORDINARY COURSE OF BUSINESS AND AMOUNT OF RS.2,72,583/- ON THE ABOVE AMOUNT AT 16% WAS WRONGLY DISALLOWED. AS THE ISSUE OF DISALLO WANCE OF INTEREST U/S. 36(1)(III) WAS RESTORED TO THE ASSESSING OFFI CER IN EARLIER YEARS, WHICH WE WERE INFORMED THAT NO ORDER HAS BEEN PASSED YET BY THE ASSESSING OFFICER, IN THE INTEREST OF JUSTICE, WE RESTORE THE MATTER TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSI DERATION. ASSESSING OFFICER IS DIRECTED TO CONSIDER THE FACTS, SUBMISSIONS AND CASE LAW RELIED ON THE ISSUE AND DECIDE ACCORDINGLY. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. THUS, RESPECTFULLY FOLLOWING THE AF ORESAID DECISION, THIS ISSUE IS RESTORED BACK TO THE FILE OF THE AS SESSING OFFICER AS PER THE DIRECTION GIVEN IN THE AFORESAID ORDER. IN T HE RESULT, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 4 . GROUND NO.2 RELATES TO DISALLOWANCE OF EXPENDITURE ON AD HOC BASIS AT THE RATE OF 10%, MADE UNDER SECTION 14A IN RESPECT OF EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. DURING THE RELEVANT ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 5 YEAR, THE ASSESSEE HAD EARNED DIVIDEND INCOME AMOUNTING TO ` .32,71,963/- AND INCOME FROM UNITS AMOUNTING TO ` .47,52,000/- WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(33) OF THE ACT. THE ASSESSING OFFICER INVOKED THE PR OVISION OF SECTION 14A AND MADE A DISALLOWANCE OF ` .61,62,317/-. IN THE FIRST APPEAL, LEARNED CIT(A) UPHELD THE DISALLOWANCE OF 10% AS EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME IN VIEW OF THE FI NDING GIVEN BY THE CIT(A) FOR THE EARLIER YEARS. 4.1 BOTH THE PARTIES BEFORE US ADM ITTED THAT THIS ISSUE HAS BEEN DEALT WITH BY THE TRIBUNAL IN THE ASSESSMENT YEAR 1999-2000, WHEREIN THE ITAT HAS DIRECTED TO RECALCULATE THE DISALLOWANCE AT THE RATE OF 2% OF THE GROSS DIVIDEND. THE RELEVANT OBSERVATION AND FINDING OF THE ITAT ARE AS UNDER :- 9.1 WE HAVE CONSIDERED THE ISSUE. IT IS FAIRLY ADMITTED THAT THE ISSUE IS COVERED BY THE DECISIONS OF VARIOUS HIGH COURTS IN FAVOUR OF THE ASSESSEE. FURTHER, IT WAS CONSIDERED THAT IN THE ASSESSMENT YEAR 1995-96 THE TRIBUNAL VIDE PA RA NO. 20 AND 21 HAS UPHELD THE DISALLOWANCE TO THE TUNE OF 0 .5 % OF THE GROSS INCOME WHICH WAS EARNED TO THE EXTENT OF RS.94,81, 601/-. IN ASSESSMENT YEAR 1996- 97 THE SAME WAS ALSO FOLLOWED DIRECTING THE ASSESSING OFFICER TO RE-CALCULATE THE DISALLOWANCE AT 0. 5% OF THE GROSS DIVIDEND INCOME. IT WAS FAIRLY ADMITTED IN THE CA SE OF GODREJ VS. ACIT IN ITA.1629/MUM/2009 AND GODREJ INDUSTRIES LTD. VS. DCIT ITA.NO.1090/MUM/2009 THAT THE EXPENDITURE ON DIVIDEND INCOME WAS ESTIMATED AT 5% OF THE GROS S DIVIDEND INCOME. CONSIDERING THE FACT THAT IN ASSESSEES OWN CASE 0.5% WAS ALLOWED IN EARLIER YEARS WHILE CONSIDERING THE AMOUNT OF DIVIDEND EARNED AT RS.9,26,746/-, AND IN OTHER CASES AT 5%,WE ESTIMA TE THE EXPENDITURE RELATABLE TO EARNING THE EXEMPT INCOME AT 2% OF THE AMOUNT, WHICH IN OUR VIEW IS A REASONABLE AMOUNT CONSIDERI NG THE INVESTMENT OF RS.13.32 CRORES MADE AND DIVIDEND EARNED THEREON. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO RE CALCULATE THE DISALLOWANCE AS ABOVE AT 2% OF GROSS DIVIDEND. THE GROUND IS PARTLY ALLOWED. ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 6 THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION FOR THE EARLIER ASSESSMENT YEAR, WE HOLD THAT DI SALLOWANCE SHOULD BE RESTRICTED TO 2% OF THE GROSS DIVIDEND. IN THE RESULT, GROUND NO.2 IS PARTLY ALLOWED . 5 . GROUND NO.3 RELATES TO DISALLOWANCE OF ` .61,49,373/- UNDER SECTION 43B. IN THE RETURN OF INCOME THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 43B BEING PAYMENTS MADE IN RESPECT OF ITEMS SHOWN AS PREPAID EXPENSES. BEFORE THE ASSESSING OFFICER, FOLLOWING NOTE WAS GIVEN IN THIS REGARD :- DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2000-01, THE COMPANY HAS PAID AN AGGREGATE AMOUNT OF ` .61,49,373/- IN RESPECT OF ITEMS COVERED UNDER SECTION 43B. THE AFORESAID AMOUNT HAS BEEN CONSIDERED AS PREPAID AND HAS NO T BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. ACCORDINGLY, THE SAID AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE TOTAL INCOME SINCE IT HAS BEEN PAID DURING THE PREVIOUS YEAR AND IS ALLOWABLE UNDER SECTION43B. THE ASSESSING OFFICER REJECTED THE SAID CONTENTION ON THE GROUND THAT ONLY EXPENSES INCURRED DURING THE Y EAR CAN BE ALLOWED UNDER SECTION 43 B. BEFORE THE CIT(A), IT WAS REIT ERATED THAT AS PER THE PROVISION OF SECTION 43B, DEDUCTION SHOULD BE ALLOWABLE IN THE YEAR IN WHICH THE SUM IS ACTUALLY PAID, IRRESPECTIVE OF THE YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM IS INCURRED ACCORDING TO METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE DETA ILS OF ITEMS COVERED U/S. 43B NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT PAID IN THE PREVIOUS YEAR WERE FILED BEFORE THE CIT(A). THE LD. CIT(A) TOO REJECTED THE CONTENTION OF THE ASSESSEE AND HEL D THAT DEDUCTION UNDER SECTION 43B COULD BE ALLOWED ONLY IN RESPECT OF ITEMS DEBITED TO THE PROFIT AND ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 7 LOSS ACCOUNT AND NOT OTHERWISE. SINCE THE PREPAID EXPENSES HAVE NOT BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT, THE SAME ARE OTHERWISE NOT ALLOWABLE UNDER SECTION 43B. 6 . BEFORE US, LEARNED AR SUBMITTED THAT SINCE THESE EXPENSES THOUGH RELATING TO EARLIER YEARS BUT WERE PAID DURING THE YEAR, THE SAME HAS TO BE ALLOWED UNDER SECTION 43B. IT WAS ALSO SUBMITTED THAT IN THE SUBSEQUENT YEARS, THIS AMOUNT THOUGH DEBITED IN THE PROFIT LOSS ACCOUNT, HOWEVER, IT HAS BEEN DISALLO WED BY THE ASSESSEE ITSELF. IN SUPPORT OF HIS CONTENTION, HE RE LIED UPON THE FOLLOWING DECISION :- I) DCIT VS. M/S GLAXO SMITHKLI NE CONSUMER HEALTHCARE LTD. (107 ITD 343)(SB)(CHD); II) NIVI TRADING LIMITED VS DCIT (ITA NO.5455/MUM/2010); III) CIT VS C.L.GUPTA & SONS (259 ITR 513)(ALL); AND IV) SRF LTD VS. DCIT (34 SOT 1)(DEL). ON THE OTHER HAND, LEARNED CIT(DR) RELIED UPON THE FINDINGS OF THE CIT(A) AND SUBMITTED THAT ADMITT EDLY THE ASSESSEE HAS NOT DEBITED EXPENSES ITSELF IN THE PROFIT LOSS ACC OUNT, HENCE, CANNOT BE ALLOWED. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO THE FINDINGS OF THE CIT(A) AS WELL AS T HE ASSESSING OFFICER. SECTION 43B IS A NON OBSTANTE CLAUSE AND PROVIDES THAT A DEDUCTION UNDER THIS ACT SHALL BE ALLOWED IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPL OYED BY HIM WHILE COMPUTING THE INCOME UNDER SECTION 28 OF THAT PREV IOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 8 7.1 IT IS UNDISPUTED THAT THESE AM OUNTS IN RESPECT OF WHICH DEDUCTION HAS BEEN CLAIMED ARE COVERED UNDER SECTION 43B AND HAVE ACTUALLY BEEN PAID DURING THE YEAR. THUS, THE SUM WHICH IS ACTUALLY PAID IRRESPECTIVE OF THE YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM HAD INCURRED EVEN ACCORDING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, HAS TO BE ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 43B. FURTHER, IT HAS ALSO BEEN CLARIFIED BY THE LEARNED AR THAT THESE AMOUNTS WHIC H HAS BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT HAS NOT BEEN CLAI MED IN THE SUBSEQUENT YEAR AND HAS BEEN ACCEPTED BY THE DEPARTMENT AS WELL AS BY THE ASSESSEE. THUS, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION FOR THE SUMS PAID DURING THE YEAR UNDER SECTION 43B AND THE DISALLOWANCE MADE AT ` .61,49,373/- IS UNCALLED FOR. IN THE RESULT, GROUND NO.3 IS ALLOWED . 8 . IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` .3,27,823/- IN RESPECT OF CLAI M OF DEDUCTION OF WEALTH TAX PAYMENT. THE ASSESSEE FAIRLY ADMITT ED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE IN THE AS SESSEES OWN CASE FOR THE ASSESSEMENT YEAR 1998-1999 AND 1 999-2000 BY THE ORDER OF ITAT AND ALSO THE DECISION OF MUMBAI BENCH IN THE CASE OF BACHCHARJ FACTORIES LTD. VS ACIT (56 ITD 225) (BOM). THE RELEVANT OBSERVATION OF THE ITAT IN THE ASSESSEES APPEAL FOR THE EARLIER YEARS ARE AS UNDER:- 28. GROUND NO.11 PERTAINS TO CLAIM OF WEALTH TAX PAYMENT OF RS.1,72,123/-. EVEN THOUGH IT WAS CONTENDED THAT PROVISIONS OF ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 9 SECTION 40A(IIA) ARE NOT ATTRACTED ON THE GROUND THAT EXPLANATION TO SECTION 40A(IIA) SPECIFICALLY EXCLUDES ANY TAX CHARGEABLE WITH REFERENCE TO THE VALUE OF ANY PAR TICULAR ASSET OF THE BUSINESS OR PROFESSION, IT WAS FAIRLY CONCEDED THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE COORDINATE B ENCH IN THE CASE OF BACHARAJ FACTORIES LTD. VS. ACIT 56 ITD 225 (BOM.). IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE GROUND RAISED BY THE ASSESSEE. THUS, RESPECTFULLY FOLLOWING THE ABOVE DECISION, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE AND GROUND NO.4 IS DISMISSED . 9 . ITA NO.2841/MUM/2007 (AY 2000-01)(BY DEPARTMENT) : GROUND NO.1 RELATES TO TAXABILITY OF ADVANCE LICENCE BENEFIT RECEIVABLE OF ` .37,17,945/- AND PASS BOOK BENEFIT RECEIVABLE AT ` .3,09,13,702/-. THE ASSESSEE HAS CLAI MED IN THE RETURN OF INCOME BENEFIT UNDER ADVANCE LICENCE BENEFIT AGGREGATING TO ` .37,17,945/- BEING THE BENEFIT IN THE FORM OF CONC ESSION IN CUSTOM DUTY IN THE EVENT THAT THE COMPANY WERE TO IMPOR T GOODS. IT HAS BEEN SUBMITTED THAT, THOUGH THE EXPORT OBLIGATION WAS OVER , CORRESPONDING IMPORTS WERE NOT DONE DURING THE ACCOUNTING YEAR AND, THEREFORE, NO BENEFITS IS DERIVED AS CONTINGENCY FOR GETTING EXEMPTION IN RESPECT OF CUSTOM DUTY HAS NOT ARISEN DURING THE YEAR. BEFORE THE ASSESSING OFFICER, IT WAS ALSO SUBMITTED THAT NO BENEFIT HAD ACCRUED TO THE ASSESSEE, WHATEVER MAY BE THE ENTRIES THAT MIGHT HAVE BEEN PASSED BY IT IN THE BOOKS OF ACCOUNT. WHAT THE COMPANY HAD ACC OUNTED IN ITS BOOKS WAS A FUTURE DUTY BENEFIT, IT WOULD GET IN RESP ECT OF IMPORT OF MATERIALS. THE ASSESSEE WILL GET BENEFIT OF IMPORT OF MATERIALS CONSEQUENT TO EXPORTS EFFECTED BY IT UNDER DEPB SCHEME. THE ASSESSEE ALSO RELIED UPON THE ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 10 DECISION OF ITAT MUMBAI BENCH IN THE CASE OF JAMSHRI RANJITSINGHJI SPG. & WVG. MILLS LTD., VS. I.A.C. (41 ITD 142) . THE ASSESSING OFFICER REJECTED THE CONTENTION OF TH E ASSESSEE AND HELD THAT THE SAME IS TAXABLE IN VIEW OF THE REASONI NGS GIVEN IN THE ASSESSMENT YEAR 1999-2000. SIMILARLY ON THE TAXABILI TY OF PASS BOOK BENEFIT RECEIVABLE AMOUNT, HE RELIED UPON THE EARLIER ORDER FOR THE ASSESSMENT YEAR 1999-2000. 10 . BEFORE THE CIT(A) REGARDING ADVANCE LICENCE BENEFIT RECEIVABLE, IT WAS SUBMITTED BY THE ASSESSEE THAT NO INCOME ACCRUED TO THE ASSESSEE UNTIL THE IMPORTS WERE MADE AND THE RAW MATERIALS WERE CONSUMED, WHICH HAD TAKEN PLACE IN THE SUBSEQUENT YEAR. THE ENTRIES MADE BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT ARE NOTIONAL IN NATURE AS THE SAME REPRESENTS THE NOTIONAL VALUE OF BENEFITS UNDER IMPORT AND EXPORT POLICY, WHICH THE A PPELLANT ACCEPTED TO RECEIVE IN RESPECT OF FREE RAW MATERIALS. WITH REGARD TO TAXABILITY OF PASS BOOK BENEFIT RECEIVABLE AMOUNTING TO ` .3,09,13,702/-, IT WA S SUBMITTED THAT IN THE ACCOUNTS FOR THE YEAR ENDING 31-3-2000, AN AMOUNT OF ` .11,24,52,060/- BEING THE NET BENEF IT UNDER THE PASS BOOK SCHEME AS PER THE IMPORT AND EXPORT POLICY WAS SHOWN UNDER THE HEAD INCENTIVES ON EXPORTS. OUT OF THE AFORESAID AMOUNT, THE PASS BOOK BENEFIT IN RESPECT OF WHICH CREDIT HAD NOT BEEN RECEIVED UPTO 31 ST MARCH, 2000 AMOUNTED TO ` .3,09,13,702/-. THOUGH IN THE RETURN OF INCOME, THE ENTIRE AFORESAID AMOUN T WAS OFFERED FOR TAX OUT OF ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 11 ABUNDANT CAUTION, IT WAS ALSO CONTE NDED THAT INCOME IN RESPECT OF PASS BOOK BENEFIT DOES NOT ACCRUE UNTIL CREDIT IS RECEIVED IN THE PASS BOOK AND ACCORDINGLY, THE SAID AM OUNT CANNOT BE TAXED IN THIS ASSESSMENT YEAR. 11 . LEARNED CIT (A) FOLLOWING THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 1999-2000 AND DELETED THE ADDITION. 12 . BOTH THE PARTIES AT THE VERY OU TSET, ADMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-2002 AND 2004-2005. EVEN THE ITAT IN THE ASSESSMENT YEAR 1999-2000, FOLLOWING THE HIGH COURT JUDGMENT HAS DELETED THE ADDITION. 13 . WE HAVE CAREFULLY PERUSED THE MATERIAL ON RECORD AND THE DECISION RELIED UPON BY THE PARTIES. IT IS OBSERVED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSE E BY THE ITAT VIDE ORDER DATED 4-5-2012, WHEREIN THE TRIBUNAL, INTER ALIA , RELYING UPON THE DECISION OF THE BOMBAY HIGH COURT, HAS HELD AS UNDER :- 33. GROUND NO. 3 AND 11 PERTAINS TO DISALLOWANCE OF CONTRIBUTION TO APPROVED GRATUITY FUND. ASSESSEE DEBITED AN AMOUNT OF RS.2,49,32,113/- IN RESPECT OF CONTRIBUTION TO APPROVED GROUP GRATUITY INSURANCE SCHEME. THE A SSESSEE SUBMITTED THAT AMOUNT OF RS.1,60,00,000/- WAS PAID ON VARIOUS DATES BEFORE 31 ST MARCH, 1999 AND BALANCE AMOUNT OF RS .89,72,113/- WAS PAID ON 25 TH MAY, 1999. THE ASSESSING OFFICER REJECT ED THE SUBMISSIONS VIDE PARA 6 OF THE ASSESSMENT ORDER AND DISALLOWED THE ENTIRE AMOUNT UNDER SECTION 43B ON THE GROUND THAT ASSESSEE HAS NOT FURNISHED ANY PROOF IN RESPECT OF PAYMENTS. BE FORE THE LEARNED CIT(A) IT WAS CONTENDED THAT ASSESSEE HAS FURNISHED ALL THE DETAILS AND RELIED ON THE DECISION OF THE DELH I TRIBUNAL IN ACIT VS. R.R. LTD. 93 TTJ 144. THE LEARNED CIT(A) FOLLOWING THE DECISION OF THE HONBLE SUPREME ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 12 COURT IN THE CASE OF ALLIED MOTO RS PVT. LTD. VS. CIT 224 ITR 677 (S.C.) HELD THAT OMISSION OF TH E SECOND PROVISO WHICH WAS AN EXCEPTION TO THE FIRST PROVISO HA S TO BE HELD TO BE RETROSPECTIVE. THEREFORE, THE AMENDMENT TA KES RETROSPECTIVE EFFECT AND ACCORDINGLY ANY CONTRIBUTION TO APPR OVED GRATUITY PAID BEFORE THE FILING OF THE RETURN HAS TO BE AL LOWED AS A DEDUCTION. THE REVENUE IS CONTESTING THE SAME. IT WAS FAIRLY SUBMITTED THAT THIS DECISION IS AGAINST THE REVENUE BY THE PRINCIPL ES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. ALOM EXTRUSIONS LTD. 319 ITR 306 (S.C.). ACCORDINGLY, THE ORDER OF THE LEARNED CIT(A) DOES NOT REQUIRE ANY M ODIFICATION. THE REVENUE GROUND IS THEREFORE DISMISSED. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, THE ISSUE IS DECIDED AGAINST THE DEPARTMENT. ACCORDINGLY, THE ADDITION MADE ON THIS SCORE IS DELETED. THUS, GR OUND NO.1 OF THE DEPARTMENT IS DISMISSED. 14. GROUND NO.2 RELATES TO DISALLOWANCE OF 10% OF EXPENDITURE IN CONNECTION WITH, THE EXEMPT INCOME OF ` .61,62,317/-. THIS ISSUE HAS ALREADY BEEN DEALT WITH IN THE ASSESSEES APPEAL IN THE GROUND NO.2, WHEREIN WE HAVE FOLLOWED THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998-1999 & 1999- 2000, THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO 2% OF DIVIDEND INCOME. IN VIEW OF THE FINDING GIVEN IN THE ASSESSEES APPEAL IN THE GROUND NO.2, THE DEPARTMENT GROUND IS TREATED AS DISMISSED. 15. GROUND NO.3 , RELATES TO DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND UNDER SECTION 43B IN RESPECT OF EMPLOYERS CONTRIBUTION TO THE PROVIDENT FUND AND EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND AND EPF, ON THE GROUND THAT THE SAME WAS PAID BEYOND THE DUE DATE BUT BEFORE THE END OF THE PREVIOUS YEAR. THE SAID ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 13 AMOUNT WAS DISALLOWED UNDER SECTION 43B READ WITH SECTION36(1)(VA). THE CIT(A) HAD DELETED BOTH THE A DDITIONS MADE ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PROVI DENT FUND AND EPF AS THE SAME WAS PAID WITHIN THE GRACE PERIOD AND ALSO EMPLOYER CONTRIBUTION AS THE SAME WERE PAID AFTER THE DUE DATE BUT BEFORE THE END OF THE FINANCIAL YEAR. 16 . IT HAS BEEN ADMITTED BY BOTH THE PAR TIES THAT THIS ISSUE HAS BEEN DECIDED BY THE HONBLE ITAT FOR THE ASSESSMENT YEAR 1998-1999 & 1999-2000 FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD, REPORTED IN 319 ITR 306(SC) . THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE EARLIER YEARS, WE HOLD THAT NO DISALLOWANCE IS CALLED FOR AS THE SAME IS COVERED BY THE DECISION OF THE HONBLE SUPREME COURT, WHEREIN IT HAS BEEN HELD THAT THE AMENDMENT IN SECOND PROVISO IS WITH RETROSPECTIVE EFFECT. THE RELEVANT FINDING OF THE IT AT FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREIN BELOW :- 33. GROUND NO. 3 AND 11 PERTAINS TO DISALLOWANCE OF CONTRIBUTION TO APPROVED GRATUITY FUND. ASSESSEE DEBITED AN AMOUNT OF RS.2,49,32,113/- IN RESPECT OF CONTRIBUTION TO APPROVED GROUP GRATUITY INSURANCE SCHEME. THE A SSESSEE SUBMITTED THAT AMOUNT OF RS.1,60,00,000/- WAS PAID ON VARIOUS DATES BEFORE 31 ST MARCH, 1999 AND BALANCE AMOUNT OF RS .89,72,113/- WAS PAID ON 25 TH MAY, 1999. THE ASSESSING OFFICER REJECT ED THE SUBMISSIONS VIDE PARA 6 OF THE ASSESSMENT ORDER AND DISALLOWED THE ENTIRE AMOUNT UNDER SECTION 43B ON THE GROUND THAT A SSESSEE HAS NOT FURNISHED ANY PROOF IN RESPECT OF PAYMENTS. BE FORE THE LEARNED CIT(A) IT WAS CONTENDED THAT ASSESSEE HAS FURNISHED ALL THE DETAILS AND RELIED ON THE DECISION OF THE DELH I TRIBUNAL IN ACIT VS. R.R. LTD. 93 TTJ 144. THE LEARNED CIT(A) FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF ALLIED MOTORS PVT. LTD. VS. CIT 224 ITR 677 ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 14 (S.C.) HELD THAT OMISSION OF TH E SECOND PROVISO WHICH WAS AN EXCEPTION TO THE FIRST PROVISO HA S TO BE HELD TO BE RETROSPECTIVE. THEREFORE, THE AMENDMENT TAKE S RETROSPECTIVE EFFECT AND ACCORDINGLY ANY CONTRIBUTION TO APPR OVED GRATUITY PAID BEFORE THE FILING OF THE RETURN HAS TO BE AL LOWED AS A DEDUCTION. THE REVENUE IS CONTESTING THE SAME. IT WAS FAIRLY SUBMITTED THAT THIS DECISION IS AGAINST THE REVENUE BY THE PRINCIPL ES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. ALOM EXTRUSIONS LTD. 319 ITR 306 (S.C.). ACCORDINGLY, THE ORDER OF THE LEARNED CIT(A) DOES NOT REQUIRE ANY M ODIFICATION. THE REVENUE GROUND IS THEREFORE DISMISSED. THUS, IN VIEW OF THE AFORESAID, GROUND NO.3 OF THE DEPARTMENT IS DISMISSED. 17. GROUND NO.4 , RELATES TO EXCLUSION OF EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. IT HAS BEEN ADMITTED BY BOTH TH E PARTIES THAT THIS ISSUE STANDS COVERED BY THE DECISION OF THE ITAT IN THE EARLIER ASSESSMENT YEARS 1998-1999 & 1999-2000(SUPRA), WHEREIN THE ITAT FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF LAXMI MACHINE WORKS, REPORTED IN 290 ITR 667 (SC) , HAS REJECTED THE DEPARTMENTS GROUND. THE RELEVANT FINDING OF THE IT AT IS REPRODUCED HEREIN BELOW :- 17. GROUND NOS. 3 TO 5 PERTAIN TO ISSUE OF EXCLUDING EXCISE DUTY AND SALES TAX FROM THE TOTAL TURNOV ER OF THE ASSESSEE. THE REVENUE HAS RAISED THE GROUND ON THE REASON THAT JURISDICTI ONAL HIGH COURT JUDGMENT IN THE CASE OF M/S. SUDERSHAN CHEMICALS LTD. 245 ITR 769 HAS BEEN CONTESTED BY THE DEPARTMENT BEFORE THE HONBLE SUPREME COURT OF INDIA. NOW, THIS ISSUE IS SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF LAXMI MACHINE WORKS 290 ITR 667 (S.C.) WHEREIN IT WAS HELD THAT E XCISE DUTY AND SALES TAX WOULD NOT HAVE AN ELEMENT OF TURNOVER AND T HEY OUGHT NOT TO BE INCLUDED IN THE TOTAL TURNOVER OR EXPORT TURNOVER . IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT AFFIRMING T HE JURISDICTIONAL HIGH COURT ORDER, WE DO NOT SEE ANY REASON TO INTERFER E WITH THE ORDER OF THE CIT(A). GROUND NO. 3 TO 5 ARE REJECTED. ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 15 HENCE, FOLLOWING THE AFORESAID DEC ISION, THE DEPARTMENTS GROUND NO.4 IS DISMISSED. 18. GROUND NO.5 , RELATES TO EXCLUSION OF OTHER INCOME FROM THE TOTAL TURN OVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. THE ASSESSING OFFICER HAS INCLUDED THE ITEM S OF OTHER INCOME LIKE DIVIDEND, INTEREST, ROYALTY AND TECHNICAL FE ES, RENT, SALES-TAX REFUND ETC. AGGREGATING TO ` .8,27,783/- AND MISCELLANEOUS ITEMS OF ` .26,06,525/- AS PART OF TOTAL TURNOVER. THE CI T(A) FOLLOWING THE DECISION FOR THE ASSESSMENT YEAR 1997-1998, HELD THAT ALL THE OTHER ITEMS AGGREGATING TO ` .8,27,783/- WILL BE EXCLUDED FROM THE TOTAL TURN OVER UNDER SECTION 80HHC. IT HAS BEEN SUBMITTED BY BOTH THE PARTIES THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSE SSEE FOR THE ASSESSMENT YEAR 1998- 1999 & 1999-2000 BY THE ITAT. 19 . AFTER CAREFULLY CONSIDERING THE IMPUGNED ORDERS AND THE DECISION OF ITAT, WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDING OF THE ITAT IN PARA 12 & 12.1 ARE REPRODUCED HEREIN BELOW :- 12. GROUND NO 12(A) :DEDUCTION UNDER SECTION 80HHC :THE ASSESSING OFFICER WORKED OUT T HE TOTAL TURNOVER INCLUDING CERTAIN INCOMES. THE DETAILS OF WH ICH ARE EXTRACTED IN PARA 24.2 BY THE CIT(A). IT WAS SUBMITTED THAT M ANY OF THE ITEMS LIKE DIVIDEND ETC., ARE INCOME FROM OTHER S OURCES AND THE SAME DOES NOT FORM PART OF TURNOVER AND FURTHER TOTAL TUR NOVER IS TO BE CONSIDERED ONLY IN RESPECT OF GOODS SOLD AND CANNOT INCLUDE THE OTHER INCOME. THE CIT(A) DIFFERED FROM HIS PRED ECESSOR ORDER AND CONFIRMED THE INCLUSION OF OTHER INCOMES LIKE R ENT, INTEREST, BROKERAGE, SALES TAX REFUND AS PART OF TOTAL TURNOVER. THE ASSESSEE WHILE CONTESTING THE GROUND HAS RESTRICTED T HE ARGUMENTS ONLY TO THE ITEMS OF RENT, ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 16 INTEREST, BROKERAGE AND SALES TAX REFUND WHICH ARE INCLUDED IN THE TOTAL TURNOVER WHILE NOT PRE SSING FOR THE OTHER ITEMS LIKE MANUFACTURING CHARGES, INSURANCE CLAIM ETC., 12.1. WE HAVE CONSIDERED THE ISSUE AND RIVAL SUBMISSIONS. AS SEEN FROM THE ORDERS IN EARLIE R YEARS, THE CIT(A) GAVE RELIEF FOLLOWING BOARD CIRCULAR NO. 621 DATED 19-12-1991 STATING THAT THE TOTAL TURNOVER HAS TO BE CONSID ERED ONLY IN RESPECT OF THE GOODS SOLD AND CANNOT INCLUDE OTHER INCOME. HOWEVER, THE PRESENT CIT(A) DIFFERED FROM THE FINDI NG IN EARLIER YEARS STATING THAT CLAUSE (BAA) DOES NOT INCLUDE THESE ITEM S AND PROFITS OF BUSINE SS, THEREFORE, THEY HAVE TO BE FORM PART OF TURNOV ER. WE ARE UNABLE TO UNDERSTAND THE LOGIC OF THE CIT(A) IN DIFFERING FROM HIS PREDECESSOR ORDER WHICH WAS BASED ON BOARD CIRCULAR. BOARD CIRCULAR WAS BINDING ON REVENUE AUTHORITIES. FURTHER, REVENUE HAS NOT CONTESTED THE FINDING OF THE LEARNED CI T(A) IN EARLIER YEARS. THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) ERRED IN DIFFERING FROM THE PREDECESSOR ORDER AND CONFIRMED CERTAI N OTHER INCOMES AS PART OF TOTAL TURNOVER. SINCE, THE HONBLE SUPR EME COURT ALSO HAS CONFIRMED IN THE CASE OF LAXMI MACHINE WORKS 290 ITR 667 THAT EVEN EXCISE DUTY AND SALES TAX WHICH DO NOT HAVE ANY ELEMENT OF PROFIT CANNOT BE INCLUDED IN THE TOTAL TU RNOVER, SIMILAR LOGIC AL SO APPLIES TO THE OTHER INCOMES WHICH DOES NOT HAVE ANY BEARING ON THE EXPORT TURNOVER AND TOTAL TURNOVER, WHILE WORKIN G OUT THE DEDUCTION UNDER SECTION 80HHC. THEREFORE, THIS GROUND OF THE ASSESSEE IS ALLOWED AND ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE AMOUNTS SHOWN IN THE OTHER INCOME UNDER THE HEAD RENT, INTEREST, BROKERAGE AND SALES TAX REFUND AND ON THE BALANCE ITEMS AS THE GROUND WAS NOT PRESSED, NO DIRECTIONS ARE REQUI RED. GROUND IS PARTLY ALLOWED. HOWEVER, IN THIS YEAR, AN AMOUNT AGGREGATING TO ` .26,06,525/- AS ADMITTED BY LD. AR ON BEHALF OF THE ASSESSEE, RELATING TO MISCELLANEOUS ITEMS WILL FORM THE PART OF THE TOTAL TURN OVER, TO THAT EXTENT, DEPARTMENTS GROUND WOULD BE PARTLY ALLOWED. 20. GROUND NO.6 , RELATES TO EXCLUSION OF EXPORT PROCEEDS NOT REALIZED UPTO 30-9-2000 FROM THE TOTAL TURN OVER FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. THE ASSESSING OFFICER HAS INCLUDED THE AMOUNT OF EXPORT PROCEEDS UPTO 30-9-2000 AMOUNTING TO ` .1,76,07,571/- IN THE TOTAL TURN OVER WHILE COMPUTING THE DEDUCTION ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 17 UNDER SECTION 80HHC. THE LD. CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE AND HELD THAT THE SA ID AMOUNT WHICH HAS NOT BEEN REALIZED, WILL NOT FORM PART OF TU RN OVER. BEFORE US, LEARNED AR SUBMITTED THAT THIS ISSUE IS COVER ED BY THE DECISION OF KERALA HIGH COURT IN THE CASE OF CIT VS. ABAD FISHERIES, REPORTED IN 258 ITR 641 (KER.) . ON THE OTHER HAND, LEARNED DR RELIED UPON THE FINDING OF THE ASSESSING OFFICER. 21 . AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE IMPUGNED ORDERS, WE HOLD THAT THE EXPORT PROCEEDS IN RELATION TO 30-9-2000 AMOUNTING TO ` .1,76,07,571/- HAVE TO BE EXCLUDED FROM THE TOTAL TURN OVER, SO AS TO MAKE TW O TERMS COMPARABLE. THIS VIEW HAS ALSO BEEN UPHELD BY THE DECISION OF H ONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. ABAD FISHERIES (SUPRA) , WHEREIN THE HONBLE HIGH COURT HELD THAT IF THE EXPORTS SA LES PROCEEDS WHICH COULD NOT BE BROUGHT INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE AND COULD NOT BE INCLUDED IN THE PROFITS, THE SAME CANNOT ALSO BE INCLUDED IN THE TOTAL TURNOVER FO R THE PURPOSE OF COMPUTATION UNDER SECTION 80HHC. ACCORDINGLY, GROUND NO.6 OF THE DEPARTMENT IS DISMISSED. 22. GROUND NO.7 , RELATES TO EXCLUSION OF 90% OF ` .26,06,535/- FROM THE PROFIT OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80HHC BY HOLDING THAT TH EY ARE NOT IN THE NATURE OF MISCELLANEOUS SALES AND OTHER ITEMS. LEARNED CIT(A) HAS RELIED UPON ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 18 THE DECISION OF THE EARLIER YEARS ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 1999-2000 AND HELD THAT 90% OF THE ` .26,06,535/- CANNOT BE EXCLUDED FOR COMPUTIN G THE DEDUCTION UNDER SECTION 80HHC. AS ADMITTED BY BOTH THE PARTI ES, THIS ISSUE HAS ALREADY BEEN DECIDED BY THE ITAT IN THE EARLIE R YEAR, WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDER :- 34. GROUND NO.4 PERTAINS TO REDUCING 90% OF THE VARIOUS ITEMS AND OTHER INCOME WHILE COMPUTING THE PROFITS OF BUSINESS UNDER SECTION 80HHC. THE ASSESSING OFFICER HAS INCLUDED SALES TAX REFUND, INSURANCE CLAIMS, TECHNICAL FEES AND MISCELLANEOUS RECEIPTS WHILE CONSIDERING THE AMOUNTS TO BE INCLUDED AS OTHER INCOME IN BAA. LEARNED CIT(A) AFTER EXAMINING THE NATURE OF THE AMOUNTS HELD THAT THIS AMOUNTS CANNOT BE EXCLUDED AT 90% AS THEY ARE BUSINESS RECEIPTS. 34.1. AFTER CONSIDERING RIVAL SU BMISSIONS AND PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COUR T IN THE CASE OF AFJAL INDIA LTD. 295 ITR 451 AND OTHER CASE LAW RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THAT THE CIT(A) HAS CORRECTLY CONCLUDED THAT THESE RECEIPTS ARE BUSINESS RECEIPTS AND NEED NOT BE EXCLUDED WHILE ARRIVING AT THE PROFITS OF BUSINESS UNDER BAA. ACCORDINGLY, REVENUE GROUND IS REJECTED. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, GROUND NO.7 AS RAISED BY THE DEPARTMENT IS DISMISSED. 23. GROUND NO.8 , RELATES TO REDUCING THE PROFITS OF FOREIGN BRANCH WHILE COMPUTING THE PROFITS OF BUS INESS FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC. THE ASSESSING OFFICER WHILE COMPUTING THE DEDUCTION UNDER SE CTION 80HHC HAS NOT REDUCED THE PROFIT OF FOREIGN BRANCH (ANTWERP), WHILE COMPUTING THE PROFITS OF THE BUSINESS AS PER CLAUSE (BAA) OF EXPLANATION BELOW SECTION 80HHC(4B). THE CIT(A) DIRECTED THE ASSESSING OFFICER TO REDUCE THE ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 19 PROFIT IN VIEW OF THE EXPRESS PR OVISIONS OF SECTION 80HHC AS PER CLAUSE ( BAA) OF THE EXPLANATION . 24 . WE HAVE PERUSED THE IMPUGNED ORDERS AND ALSO HEARD THE RIVAL SUBMISSIONS OF THE PARTIES. SUB CLAUSE 2 OF CLAUSE (BAA) TO EXPLANATION READS AS UNDER :- (BAA) 'PROFITS OF THE BUSINESS' MEANS THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' AS REDUCED BY (1) X X X X X (2) THE PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTHER ESTABLISHMENT OF THE ASSESS EE SITUATE OUTSIDE INDIA ;] FROM THE READING OF THE SAID CLAUS E, IT IS ABUNDANTLY CLEAR THAT THE PROFIT OF THE FOREIGN BRANCH HAS TO BE REDUCED AND IF THERE IS ANY LOSS, THAT SHOULD BE ADDED BACK. THUS, WE FI ND NO INFIRMITY IN THE ORDER OF THE CIT(A) AND ACCORDINGLY, GR OUND NO.8 OF THE DEPARTMENT IS DISMISSED. 25. GROUND NO.9 , RELATES TO REDUCING OF 10% OF THE EXPORT INCENTIVES, INTEREST, RENT, ETC. FR OM INDIRECT COST FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTION 80HHC. AS STATED BY THE PARTIES, THIS ISSUE STANDS COVERED BY THE DECISION OF THE ITAT OF IN THE ASSESSMENT YEAR 1999-2000, WHEREIN THE ITAT HAS DISMISSED THE SIMILAR GROUND OF DEPARTMENT AFTER OBSERVING AND HOLDING AS UNDER :- 35. GROUND NO. 5 AND 6 PERTAIN TO WORKING OF INDIRECT COST. IT WAS SUBMITTED THAT ASSESSING OFFICER DIFFERED FROM THE WORKING IN EARLIER YEARS AND HAS RE-WORKED OUT THE INDIRECT COST AND THE CIT(A) HAS CORRECTLY ALLOWED THE AMOUNTS. AFTER CONSIDERING THE ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 20 ORDER OF THE LEARNED CIT(A) AND THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH OF MUMBAI, I.T.A.T. IN SURENDRA ENGINEERING CORPORATION 86 ITD 121 AND HONBL E SUPREME COURT IN THE CASE OF HERO EXPORTS 295 ITR 454, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUNDS RAISED BY THE REVENUE. THUS, IN VIEW OF THE ABOVE, GR OUND NO.9 OF THE DEPARTMENT IS DISMISSED. 26. GROUND NO.10 , RELATES TO DEDUCTION UNDER SECTION 80IB IN RESPECT OF PROFIT OF THE UNIT WIT HOUT DEDUCTING THE LOSSES INCURRED BY THE UNITS. THIS ISSUE TOO HAS BEEN DECIDED BY THE ITAT IN THE ASSESSMENT YEAR 1996-1997, 1997-98 AND ALSO IN THE ASSESSMENT YEAR 1998-1999 AND 1999-2000, VIDE ORDER DATED 4-5-2012 (SUPRA), WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDER :- 16. GROUND NO.2 PERTAINS TO THE DEDUCTION OF 80HH, 80I AND 80IA IN RELATION TO EACH OF ELIGIBLE UNIT ON THE BASIS OF PROFIT WITHOUT ADJUSTING THE SAME AGAINST THE LOSSES OF OTHER UNITS. IT WAS FAIRLY SUBMITTED THAT THIS ISSUE IS ALSO AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE I.T.A.T. IN ASSESSMENT YEARS 1996-97 AND 1997- 98 AND FURTHER THIS ISSUE IS SUPPORTED BY THE JUDGMENT OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS. CANARA WORKSHOPS LTD. 161 ITR 320 (S.C.) AND THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SIDDAGANGA OIL EXTRACTIONS (P) LTD. 201 ITR 968 (KAR.). RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN THEREIN, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT(A) WHICH IS ACCORDING TO LAW. SINCE THIS IS SUE WAS ALSO CONFIRMED BY THE I.T.A.T. IN EARLIER YEARS, WHICH THE CIT(A) HAS FOLLOWED, THE REVENUE GROUND IS REJECTED. THUS, IN VIEW OF THE ABOVE, GROUND NO.10 OF THE DEPARTMENT IS DISMISSED. 27. GROUND NO.11 , RELATES TO DEDUCTION OF ` .6,73,258/- BEING PENALTY LEVIED UNDER SECTION 45(6) OF THE GUJARAT SALES TAX ACT. THE ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 21 ASSESSEE HAS CLAIMED FOR DEDUCTION OF AMOUNT OF ` .6,73,258/- BEING EXPENDITURE ON FINES AND PENALTIES. IT HAS BEEN SUBMITTED THAT DURING THE PREVIOUS YEAR (THE RELEVANT ASSESSMENT YEAR 2000-01), THE ASSESSEE HAD INCURRED EXPENDITURE IN RESPECT OF FINE AND PENALTY AGGREGATING TO ` .7,09,205/- UNDER THE GUJARA T SALES TAX ACT. THE DETAILS OF WHICH HAS BEEN GIVEN IN ANNEXURE-XVI OF THE TAX AUDIT REPORT. IN THE RETURN OF INCOME, THE SAID AMOUNT WAS ADDED DUE TO ABUNDANT CAUTION, HOWEVER, IN THE NOTE NO.2, IT WAS SUBMITTED THAT THE NATURE OF FINES AND PENALTIES, WERE COMPENSATORY IN NATURE AND OUGHT TO BE ALLOWED AS A DEDUCTION IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PRAKASH COTTON MILLS LTD., REPORTED IN 201 ITR 684 . BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED DETAILS NOTES IN RESPECT OF FINES AND PENALTIES AND ALSO SUBMITTED COPIES OF SALES-TAX ORDERS OF B HAVANAGAR SITE IN RESPECT OF WHICH PENALTY WAS LEVIED UNDER GUJARAT SALES-TAX ACT. BEFORE THE CIT(A), IT WAS SUBMITTED THAT PENALTY LEVIED UNDER SECTION 45(6) OF THE GUJARAT SALES TAX ACT, IS COMPENSATORY IN NATURE AND NOT PENAL AND, HENCE, SHOULD BE ALLOWED AS DEDUCTION. IN SU PPORT OF THIS CONTENTION, RELIANCE WAS PLACE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LACHMANDAS MATHURADAS VS. CIT, REPORTED IN 254 ITR 799 (SC) . THE CIT(A) AFTER PERUSING THE RELEV ANT SECTION OF GUJARAT SALES TAX ACT AND ALSO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LACHMANDAS MATHURADAS (SUPRA) , HELD THAT THE AMOUNT OF ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 22 ` .6,73,258/-, WHICH WAS A PENALTY LEVIED UNDER SECTION 45(6) OF GUJARAT SALES TAX ACT, IS COMPENSAT ORY IN NATURE AND NOT IN THE NATURE OF PENAL VIOLATION. ACCORDINGLY, HE HEL D THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION IN RESPECT OF THIS AM OUNT. FOR THE BALANCE AMOUNT OF ` .35,947/-, THE SAME WAS ADDED AS NO DETAILS WERE FURNISHED. 28 . WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN VIEW OF THE FACT THAT THE AMOUNT OF ` .6,73,258/- IS COMPENSATORY IN NATURE AND, THEREFORE, THE DECISI ON OF THE HONBLE SUPREME COURT REFERRED TO ABOVE, SQUARELY APPLIES AND, ACCO RDINGLY, THERE IS NO SUBSTANCE IN THE GROUND RAISED BY THE DEPARTMENT. HENCE, GROUND NO.11 IS HEREBY DISMISSED. IN THE RESULT, APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED . 29. ITA NO.532/MUM/2009(AY 2003-04)(BY ASSESSEE) IN GROUND NO.1 , THE ASSESSEE HAS CHALLENGED THE ADDITION OF ` .61,17,4224/- ON ACCOUNT OF ADDING BACK THE BOOK DEPRECIATION OF DEMERGED ENTITY. THE RELEVANT FACT S ARE THAT THE ASSESSEE HAS DEBITED DEPRECIATION IN PROFIT LOSS ACCOUNT AMOUNTING TO ` .8,17,14,918/- AS UNDER :- PARTICULARS (` .IN LACS) DEPRECIATION LESS: TRANSFERRED FROM REVALUATION RESERVE: LESS: DEPRECIATION ALLOCATED TO EXCEL CROP CARE LIMITED ON COMMONLY USED ASSETS PURSUANT TO THE SCHEME OF ARRANGEMENT TOTAL 9,67.91 89.59 8,78.32 61.17 8,17.15 ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 23 IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS ADDED BACK ` .8,17,14,918/- AND CLAIMED DEPRECIATION AS PER INCOME TAX RULES ON THE FULL VALUE OF THE OWN ASSETS. THE FACTS AS NOTED BY THE ASSESSING OFFICER ARE THAT THERE WAS SCHEM E OF ARRANGEMENT OF DEMERGER OF EXCEL CROP CARE LIMITED WITH ASSESSEE COMPANY WAS W.E.F. 1-9-2003 IN PURSUANCE OF ORDER OF THE HON BLE HIGH COURT DATED 18-7-2003. IN PURSUANCE THEREOF, THE ACCOUNT WAS PREPARED BY BIFURCATION OF THE INCOME AND EXPENSES OF THE TWO ENTIT IES ACCORDING TO THE SCHEME OF THE ARRANGEMENT. SOME OF THE ASSE TS HAVE BEEN PUT TO COMMON USE BUT UNDER THE SCHEME OF ARRANGEMENT, WAS BELONG TO THE ASSESSEE FROM THE APPOINTED DATE. THIS WAS BECAUSE OF THE FACT THAT APPROVAL WAS GRANTED ON 18-7-2003 BUT W.E.F. 1-4-2002, HENCE, DURING THE YEAR FOR DETERMINING THE CORRECT PROFITS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE SHOULD HAVE CHARGED AS INCOME THAT PART OF THE DEPRECIATION WHICH WAS ALLOCABLE TO DEMERGED ENTITY AND SIMILARLY THE DEMERGED ENTITY SHOULD HAVE CHARGED ITS EXPENSES IN ITS ACCOUNTS. THUS, ACCORDING TO THE ASSESSING OFFICER, BOTH THE CONCERNS HAVE TREATED THE AMOUNTS WRONGLY AS DEPR ECIATION. THE DEMERGED ENTITY HOWEVER, FILED THE REVISED RETURN OF INCOME WHEREIN THIS MISTAKE WAS RECTIFIED AND THE INCOME UNDER THE A CT WAS REDUCED BY THE AMOUNT OF THESE CHARGES. HOWEVER, THE ASSESS EE HAD NOT MODIFIED THE RETURN OF INCOME. AS PER THE ASSESSING OFFICER WHAT THE ASSESSEE WAS REQUIRED TO ADD BACK TO ITS INCOME IS BOOK DEPRECIATION I.E. THE TOTAL ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 24 DEPRECIATION ON ITS OWNED ASSET AND NOT THE FIGURE AS REDUCED BY THE DEPRECIATION ALLOCATED TO THE DEMERGED ENTITY AND IT WAS IN THE NATURE OF RECOVERY AND NOT DEPRECIA TION. THUS, HE ADDED BACK THE DEPRECIATION IN THE COMPUTATION OF INCOME AT ` .8,78,32,142/- INSTEAD OF ` .8,17,14,918/- AS DONE BY THE AS SESSEE, HENCE, DIFFERENCE OF ` .61,17,224/- WAS ENHANCED. 29.1 BEFORE THE CIT(A), IT WAS SUBM ITTED THAT THE SCHEME OF MERGER WAS VIDE ORDER DATED 18-7-2003 OF THE HIGH COURT WHICH WAS TO BE EFFECTIVE FROM 1-9-2003, HOWEVER , THE APPOINTED DATE OF THE DEMERGER WAS FROM 1-4-2002. BETWEEN THE SAID PERIOD, THE COMMON EXPENSES I.E. FOR THE PERIOD FROM 1-4-2002 TO 31-8-2003 WERE ALLOCATED BETWEEN THE EXCEL INDUSTRIES LTD. I.E. T HE ASSESSEE AND EXCEL CROP CARE LTD. I.E. THE DEMERGER ENTIT Y, ON THE BASIS OF THE RESOLUTION PASSED BY THE BOARD OF DIRECTORS OF BOTH THE COMPANIES AND CONSEQUENTLY VARIOUS EXPENSES WERE BIFURCATED BETWEEN THE TWO COMPANIES WHICH INCLUDED THE BOOKED DEPRECIATION IN RESPECT OF THE COMMONLY USED ASSETS. FURTHER, IT WAS SUBMITTED BEFORE HIM THAT THE ASSESSEE HAD ADDED AN AMOUNT OF ` .8,17,14,918/- IN RESPECT OF BOOK DEPRECIATION BEING THE DEPRECIATION DEBITED TO THE PROFIT LO SS ACCOUNT AS PER ITS BOOKS OF ACCOUNTS AND THAT AMOUNT OF ` .61,17,224/- BEING THE BOOK DEPRECIATION, ALLOCATED TO THE DEMER GER ENTITY, WAS NOT DEBITED IN THE PROFIT LOSS ACCOUNT AND ACCORDI NGLY THE QUESTION OF ADDING BACK THE SAME TO THE NET PROFIT WHILE COMPUTI NG THE TOTAL INCOME DID NOT ARISE. IT ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 25 WAS FURTHER CONTENDED THAT DEPRECIA TION DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS THE NET BOOK DEPRECIATION AMOUNTING TO ` .8,17,14,918/- (8,78,32,142 61,17,224), WHICH WAS ARRIVED BY DEDUCTING DEPRECIATION ALLOCATED TO EXCEL CROP CARE LIMITED ON COMMONLY USED ASSETS. THUS, THE PROFIT WA S HIGHER TO THE EXTENT OF ` .61,17,224/- SINCE THE ASSESSEE HAD DEBITED A LOWER AMOUNT TO DEPRECIATION TO THE PROFIT AND LOSS ACCOUNT. 29.2 THE LEARNED CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER :- 6.7 I HAVE CONSIDERED THE FACTS OF THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. IN THE FIRST BLUS H, THE SUBMISSIONS OF THE A.R. APPEAR CONVINCING SINCE WHATEVER AMOUNT OF DEPRECIATION WAS CHARGED TO THE PROFIT AND LOSS ACCOUNT, THE SAME HAD BEEN ADDED BACK IN THE COMPUTATION OF INCOME TO ARRIVE AT THE TAXABLE INCOME. OBVIOUSLY, ON THE FACE OF IT, T HE ARGUMENT OF THE A.R. APPEARS CORRECT. HOWEVER, WHEN THE FACTS OF THE ISSUE IN ITS ENTIRELY ARE CONSIDERED, THE ORDER PASSED BY THE A.O. HAS TO BE UPHELD. THE A.O. HAS CLEARLY BROUGHT OUT THE FACT THAT THE DE-MERGED ENTITY FILED A REVISED RETURN AND CLAIMED THE SAID AMOUNT OF DEPRECIATION AS DEDUCTION FROM ITS CHARGEABLE IN COME. IT NEEDS TO BE CLEARLY BROUGHT OUT HERE THAT ALTHOUGH THE DEPRECIATION COMPONENT RELATING TO THE COMMONLY USED ASSETS WAS NOT CHARGED TO THE PROFIT AND LOSS ACCOUNT BY THE RESULTANT COM PANY; NEVERTHELESS THE RESULTANT COMPANY CLAIMED DEDUCTION OF FU LL DEPRECIATION UNDER THE INCOME TAX RULES IN RESPECT OF THE SAID COMMONLY USED ASSETS ALSO ON THE PLEA THAT SUCH DEPRECIATION WAS A LLOWABLE EVEN IF THE ASSETS IN QUESTION WERE PARTLY USED. THUS, ASSUMING THAT OUT OF TOTAL ALLOWABLE DEPRECIATION OF ` .100/-, A SUM OF ` .20/- RELATED TO DEPRECIATION IN RESPECT OF COMMONLY USED ASSTS ALLOCABLE TO THE DE- MERGED COMPANY, THE APPELLANT CLAIMED A DEPRECIATION OF ` .100/- UNDER THE INCOME TAX RULE S AND A FURTHER SUM OF ` .20/- WAS CLAIMED AS AN EXPENSE (ON ACCOUNT OF DEPRECIATION IN RESPECT OF COMMONLY USED ASSETS) BY THE DE -MERGED COMPANY I.E. EXCEL CROP CARE LTD. HENCE, IT IS SEEN THAT BETWEEN THE TWO CO MPANIES I.E. THE APPELLANT AND THE DEMER GED COMPANY, THE TOTAL DEDUCTION CLAIMED FOR WORKING OUT THE TAXABLE INCOME HAS BEEN INFLATED TO ` .120/- AGAINST THE LEGITIMATE CLAIM OF ` .100/-. THE SUBMISSIONS MADE BY THE APPELLANT COULD HAVE BEEN CONSIDERED FOR ACCEPTANCE IN CASE NO CLAIM OF DEDUCTION OF ` .20/- HAD BEEN MADE IN THE CASE OF THE ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 26 DE-MERGED ENTITY. THUS, EVEN ON EQU ITY, THE CLAIM OF THE APPELLANT DOES NOT SURVIVE. 29.3 BEFORE US, LEARNED AR ON BEHALF OF THE ASSESSEE DREW OUR ATTENTION TO THE COPY OF THE PROFIT LOSS ACCOUNT AND SCHEDULE OF DEPRECIATION AND ALSO THE COMPUTATION OF INCOME AND SUBMITTED THAT IN THE RETURN OF INCOME, NET BOOK DEPRECIATION AMOUNTING TO ` .8,17,14,918/- (8,78,32,142 61,17,2 24), DEBITED TO THE PROFIT AND LOSS ACCOUNT, HAS BEEN ADDED BACK WHILE COMPUTING THE TOTAL INCOME. AN AMOUNT OF ` .61,17,224/- BEING THE BOOK DEPRECIATION ALLOCATED TO THE DEMERGED ENTITY WAS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT AND ACCORDINGLY, THE QUESTION OF ADDING BACK THE SAME TO THE TOTAL INCOME DOES NOT ARISE. ON THE OTHER HAND, LEARNED CIT DR RELIED UPON THE FINDINGS OF THE CIT(A) AS WELL AS THE ASSESSING OFFICER. 30. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE IMPUGNED ORDERS AND MATERIAL PLACED ON RECORD. FROM THE PERUSAL OF THE PROFIT LOSS ACCOUNT FOR THE YEAR ENDING 31 ST MARCH, 2003, IT IS SEEN THAT PROFIT A FTER TAXATION HAS BEEN SHOWN AT ` .3,16,37,448/-. IN THE SCHEDULE FOR DEPRECIATION, T HE DEPRECIATION HAS BEEN SHOWN IN THE FOLLOWING MANNER :- PARTICULARS (` .IN LACS) DEPRECIATION LESS: TRANSFERRED FROM REVALUATION RESERVE: LESS: DEPRECIATION ALLOCATED TO EXCEL CROP CARE LIMITED ON COMMONLY USED ASSETS PURSUANT TO THE SCHEME OF ARRANGEMENT TOTAL 9,67.91 89.59 8,78.32 61.17 8,17.15 ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 27 AS PER THE COMPUTATION OF INCOME, THE ASSESSEE HAS PROCEEDED WITH NET PROFIT AS PER PROF IT LOSS ACCOUNT AT ` .3,16,37,448/- AND THEREAFTER HAS ADDED THE DEPRECIATION OF ` .8,17,14,918/-. THE ASSESSEE HAS ALREADY REDUCED THE DEPRECIATION OF ` .61,17,224/- FROM ` .8,78,32,142/- AND NET DEPRECIATION OF ` .8,17,14,918/- WAS DEBIT ED THE PROFIT LOSS ACCOUNT. THIS, INTER ALIA , MEANS THAT IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS PROCEEDED FROM THE NET PROFIT WHICH INCLUDES CLAIM OF DEPRECIATION OF ` .8,17,14,918/- AND FROM THIS NET INCOME IT HAS FURTHER ADDED THE DEPRECIATION OF THE SAME AMOUNT. THUS, APPARENTLY THERE DOES NOT SEEM TO BE ANY QUESTION OF FURTHER ENHANCING THE BOOK DEPRECIATION OR WRITING BACK AGAIN TO THE TOTAL INCOME. THE AMOUNT OF ` .61,17,224/- WAS NOT DEBITED AT ALL TO THE PROFIT LOSS ACCOUNT AND ACCORDINGLY, THE QUESTION OF ADDING BA CK THE SAME TO THE TOTAL INCOME DOES NOT ARISE. IN VIEW OF THESE FACTS, WE DO NOT FIND ANY REASON TO CONCUR WITH THE FINDING OF THE CIT(A). ACCORDINGLY, WE HOLD THAT ADDITION OF BOOK DEPRECIATION ALLOCATE D TO THE DEMERGED ENTITY IS NOT CALLED FOR. ACCORDINGLY GROUND NO.1 IS ALLOWED . 31. GROUND NO.2 RELATES TO DISALLOWANCE OF INTEREST OF ` .69,58,000/-. THIS ISSUE HAS BEEN DEALT WITH IN THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2000-2001 IN ITA NO.2825/2007, WHEREIN THE MATTER HAS BEEN RESTORED BACK TO FILE OF THE ASSESSING OFFICER FOLLOWING THE DECISION OF THIS TRIBUNALS ORDER FOR THE EARLIER YEARS. ACCORDINGLY THIS ISSUE IS ALSO RESTORED BACK TO THE F ILE OF THE ASSESSING OFFICER AS PER ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 28 THE DIRECTION GIVEN IN THE AFORESAID APPEAL. HENCE, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSE. 32. GROUND NO.3 RELATES TO DEDUCTION IN RESPECT OF ADVANCES WRITTEN OFF AMOUNTING TO ` .55,55,000/-. BRIEF FACTS RE LEVANT FOR ADJUDICATION OF THIS GROUND ARE THAT THE ASSESSEE HAS WRITTEN OFF ADVANCES GIVEN TO VARIOUS PARTIES AGGREGATING TO ` .55,55,000/-. THE DETAILS OF THESE ADVANCES ARE GIVEN AS UNDER :- 1. UPEXCEL LTD. - 47.77 LAKHS 2. GUJARAT MACHINERY MANUFACTURERS LTD. - 3,73 LAKHS 3. WIPRO ACR LTD. - 3.73 LAKHS 4. VENUS TECHNOLOGY - 0.32 LAKHS AT THE OUTSET, THE AMOUNTS OF ADVANC ES GIVEN AT SL.NO.2, 3 & 4 HAVE NOT BEEN PRESSED BY AR, HENCE, TH ESE ARE NOT DISCUSSED AND ARE CONFIRMED. 32.1 REGARDING UPEXCEL LTD., FOR ADVANCE OF ` .47.77 LAKHS, IT WAS CONTENDED THAT THE UPEXCE L LTD IS A JOINT SECTOR COMPANY PROMOTED WITH THE INTENTION OF CREATING MANUFACTURING FACILITIES TO PRODUCE PHOSPHORUS AND ITS COMPOUNDS. HOWEVER, THE PROJECT TURNED OUT TO BE NON-VIABLE AND WAS THUS ABANDONED BEFORE ANY INSTALLATION TOOK PLACE. THEREFORE, CERTAIN EXPENDITURE INCURRED FOR DEVELOPMENT OF THE PROJECT WAS WRITTEN OFF DURING THE CURRENT ASSESSMENT YEAR. THE ASSESSING OFFICER TREATED THE SAID EXPENDITURE AS CAPITAL EXPENDITURE AND ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 29 DISALLOWED THE SAME. THE LEARNED CIT(A) TOO REJECTED THE GROUNDS TAKEN BY THE ASSESSEE. 32.2 LEARNED AR BEFORE US SUBMITTED THAT THE AMOUNT WHICH WERE WRITTEN OFF WERE IN NATURE OF REVENUE EXPENSES INCURRED DURING THE COURSE OF BUSINESS CARRIED ON BY T HE ASSESSEE AND WAS WRITTEN OFF AS THE PROJECT ITSELF WAS ABANDONED. IN SU PPORT OF HIS CONTENTION, HE RELIED UPON THE DECISION OF ITAT MUM BAI BENCH IN THE CASE OF DCIT VS MUKAND LIMITED, PASSED IN ITA NO.2708/2009 . ON THE OTHER HAND, LEARNED DR RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE CIT(A) AND FURTHER SUBMITTED T HAT THE NATURE OF EXPENSES ARE NOT BORNE OUT FROM THE RECORDS. 33. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND ALSO GONE THROUGH THE MATERIAL PLACED ON RECORD. SO FAR AS THE OTHER ADVANCES GIVEN TO VARIOUS PARTIES OTHER THAN UPEXCEL LTD., THE SAME HAS NOT BEEN PRESSED BY THE AR AND, THEREFORE, OUT OF ` .55,55,000/- A SUM OF TO ` .7,78,000/- IS TREATED AS DISM ISSED AS NOT PRESSED. NOW, THE ISSUE BEFORE US IS REGARDING T HE ADVANCES WRITTEN OFF FOR SUM OF ` .47,77,000/- RELATING TO UPEXCEL LT D. THE SAID COMPANY WAS A JOINT SECTOR COMPANY WHICH WAS FORMED WI TH THE INTENTION OF CREATING MANUFACTURING FACILITIES TO PRODUC E PHOSPHORUS AND ITS COMPOUNDS. HOWEVER, BEFORE THE PROJECT COULD START OR THE PLANTS AND MACHINERY COULD BE INSTALLED, THE ENTIRE PROJECT WAS ABANDONED DUE TO ITS NON- VIABILITY. AS PER THE CONTENTION OF THE LEARNED AR, THE EXPENSES ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 30 INCURRED WERE MOSTLY REVENUE IN NATUR E RELATING TO TRAVELLING, SALARY AND OTHER ADMINISTRATIVE EXPENSES. IF THESE ARE THE EXPENSES THE SAME CANNOT BE SAID TO BE HAVE INCU RRED ON CAPITAL ASSETS OR CREATION OF ANY CAPITAL ASSET. THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. MUKAND LTD (SUPRA) AS RELIED UPON BY THE AR IS SQUARELY APPLICABLE IN FAVOUR OF THE ASSESS EE. THE TRIBUNAL HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD., REPORTED IN 320 ITR 3450 (DEL). THE RELEVANT FINDING AND THE OBSERVATION OF T HE TRIBUNAL ARE REPRODUCED HEREIN BELOW :- 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT RECORD. AT THE OUTSET, WE NOTE THAT THE EXPENDITURE WHICH WAS WRITTEN OFF BY THE ASSESSEE WAS INCURRED FOR THE DEVELOPMENT OF MADHYA PRADESH STEEL PLANT PROJECT BUT THE SAID EXPENDITURE WAS INCURRED IN THE NATURE OF PAYMENT OF WAGES, SALARY, TRAVELING AND OTHER ADMINISTRATIVE EXPENSES. THUS , IT IS CLEAR THAT THE SAID EXPENDITURE WAS NOT INCURRED FOR CREAT ING ANY ASSET OR INVESTMENT IN THE ASSET. IT IS ALSO UNDISPUTED FACT THAT THE ASSESSEE WAS DEVELOPING THE MADHYA PRADESH STEEL PLANT PROJECT IN THE EXISTING LINE OF BUSINESS OF THE ASSESSEE. THEREFORE, THE EXPENDITUR E WAS FOR THE EXTENSION OF THE BUSINESS OF THE ASSESSEE AND NOT FOR ANY NEW BUSINESS. WHEN IT IS FOR EXTENSION OF EXISTING BUSINESS AND THE CONTROL OF BOT H EXISTING AND TH E EXTENSION OF NEW AND THE PROPOSED VENTURE ARE IN THE HANDS OF THE SAME MANAGEMENT/ADMINISTRATIO N/ ESTABLISHMENT THEN SIMPLY BECAUSE THE NEW PROJECT WAS TO BE DEVELOPED AT A FAR AWAY PLACE WILL NOT MAKE ANY DIFFERENCE IN THE ALLOW ABILITY OF NATURE OF EXPENDITURE . WE NOTE THAT THE FACTS OF THE CASE OF INDO RAMA SYNTHETICS (I) LTD (SUPRA) ARE IDENTICAL TO THE FACTS OF THE PRESENT CASE. THE HON. DELHI HIGH COURT HAS RECORDED IN PARAGRAPH 9 AS UNDER : 9. IN THE PRESENT CASE ALSO, AS ALREADY POINTED OUT ABOVE, THE EXPENDITURE INCURRED WAS IN THE NATURE OF SALARY, WAGES, REPAIRS, MAINTENANCE, DESIGN AND ENGINEERING FEE, TRAVELING AND ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 31 OTHER EXPENSES OF ADMINISTRATIVE NATURE. INDUBITABLY, IN NORM AL COURSE THESE EXPENSES WOULD BE TREAT ED AS REVENUE EXPENDITURE. THE UNIT, WHICH THE APPELLANT PROPOSED TO SET UP HAD INEXTRICABLE LINKAGE WITH THE EXISTING BUSINESS OF THE APPELLANT. THE PROPOSED BUSINESS WAS NOT AN INDIVIDUAL BUSINESS BUT VERTICAL EXPANSION OF THE PRESENT BUSINESS THUS, TEST OF EXISTING BUSINESS WITH COMMON ADMINISTRATION AN D COMMON FUND IS CLEARLY MET. SINC E THE PROJECT WAS ABANDONED, NO NEW ASSET ALSO CAME TO BE CREATED THUS, WHEN THE FACTS OF THE SAID CASE AND THE CASE IN HAND ARE SIMILAR THEN THE ISSUE IS CO VERED BY THE DECISION OF THE HON.DELHI HIGH COURT IN THE CASE OF INDO RAMA SYNTHETICS (I) LTD (SUPRA) VIDE PARAGRAPH 10 AND 11 HAS HELD AS UNDER : 10. A HARMONIOUS R EADING OF THE AFORESAID TWO JUDGMENTS OF THIS C OURT, NAMELY, TRIVENI ENGINEERING WORKS LTD (SUPRA) ON THE ONE HAND AND MODI INDUSTRIES (SUPRA) ON THE OTHER, WOULD CLEARLY DEMONSTRATE THAT ONE HAS TO KEEP IN MIND T HE ESSENTIAL PURPOSES FOR WHICH SUCH AN EXPENDITURE IS INCURRED. IF THE EXPENDITURE IS INCURRED FO R STARTING NEW BUSINESS WHICH WAS NOT CARRIED OUT BY THE ASSESSEE EARLIER, THEN SUCH EXPENDITURE IS HELD TO BE OF CAPITAL NATURE. IN THAT EV ENT IT WOULD BE IRRELEVANT AS TO WHETHER PROJECT REALLY MATERIALIZED OR NOT. HOWEVER, IF THE EXPENDITURE INCURRED IS IN RESPECT OF THE SAME BUSINESS WHICH IS ALREADY CARRIED ON BY THE ASSESSEE, EVEN IF IT IS FOR THE EXPANSION OF THE BUSINESS, NAMELY, TO START NEW UNIT WHICH IS SAME AS EAR LIER BUSINESS AND THERE IS UNITY OF CONTROL AND COMM ON FUND, THEN SUCH AN EXPENSE IS TO BE TREATED AS BUSINESS EXPENDITURE. IN SUCH A CASE WHETHER NEW BUSINESS/ASSET COMES INTO EXISTENCE OR NOT WO ULD BECOME A RELEVANT FACTOR. IF THERE IS NO CREATION O F NEW ASSET, THEN THE EXPENDITURE INCURRED WOULD BE OF REVE NUE NATURE. HOWEVER, IF THE NEW ASSET COMES INTO EXISTENCE WHICH IS OF ENDURING BENEFIT, THEN SUCH EXPENDITURE WOULD BE OF CAPITAL NATURE; 11. WHEN WE KEEP IN MIND THE AFORESAID FIND DISTINCTION, THE CONC LUSION ON THE FACTS OF THIS CASE BECOMES OBVIOUS, THE EXPENDITURE WAS INCURRED IN RESPECT OF SAME BUSI NESS WHICH IS ALREADY CARRIED ON BY THE ASSESSEE. TWO PROJECTS WHICH WERE UNDERTAKEN WERE FOR THE EX PANSION OF SAME BUSINESS, NAMELY, ONE FOR TAKING OVER SAVITRI CINEMA FOR CONVERSION INTO MULTIPLEX AND OPERATION AND MANAGEMENT THEREFORE AND OTHER FOR ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 32 CONVERSION OF PRIYA CINEMA INTO FOUR-SCREEN MULTIPLEX. PAYMENTS WERE MADE TO THE CONSULTANTS FOR PREPARING F EASIBILITY REPORT IN RESPECT OF BOTH THE PROJ ECTS. HOWEVER, ULTIMATELY PROJECTS WERE NOT FOUND TO BE FINANCIALLY AND TECHNICALLY VIABLE AND WERE SHELVED. THUS, WE FIND THAT NO NEW ASSET CAME INTO EXISTENCE, WHICH WAS THE BASIS ADOPTED BY THE AO FOR TREATING THE EXPENDITURE AS CAPITAL EXPENDITURE BUT WRONGLY. RESPECTFULLY FOLLOWING THE DECISION OF THE HON.DELHI HIGH COURT IN THE CASE OF INDO RAMA SYNTHETICS (I ) LTD (SUPRA) , WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE ORDER OF THE CIT(A) IS UPHELD QUA THIS ISSUE. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE HOLD THAT IF THE ADVANCES ARE COMPLETELY IN THE NATURE OF SALARY, WAGES AND OTHER ADMINISTRATIVE EXPENSES AS STATED BY THE AR, THEN THE SAME IS TO BE TREATED AS REVENUE EXPENDITURE. HOWEVER, THIS FINDING IS PURELY SUBJECT TO VERIFICATION BY THE ASSESSING OFFI CER, WHO WILL EXAMINE THE NATURE OF EXPENSES AND ACCORDINGLY WORK OUT THE RELIEF. HENCE, THE GROUND NO.3 IS PARTLY ALLOWED SUBJECT TO THE VERI FICATION BY THE ASSESSING OFFICER AS ABOVE. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . 34 . ITA NO.671/MUM/2009(AY 2003-04)(BY DEPARTMENT) : IN GROUND NO.1 , THE DEPARTMENT IS AGGRIE VED BY THE DEDUCTION OF ` .69,77,398/-, ALLOWED BY THE CIT( A) IN RESPECT OF ADVANCE LICENCE BENEFITS RECEIVABLE BY THE ASSESSEE. THIS ISSUE HAS ALREADY BEEN DISCUSSED IN ASSESSEES APPEAL I. E. ITA NO.2825/2007 AND ALSO IN DEPARTMENTS APPEAL I.E.ITA NO.2841/2007. IN VIEW OF THE FINDING GIVEN THEREIN THAT IT IS COVERED BY THE DECISION OF THE EARLIER ORDER OF THE ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 33 ITAT, THIS GROUND IS DECIDED AGAINST THE DEPARTMENT. HENCE, GROUND NO.1 IS DISMISSED. 35. GROUND NO.2 RAISED BY THE DEPARTMENT IS WITH REGARD TO DISALLOWANCE OF ` .5,16,577/- ON ACCOUNT OF DEDUCTION UNDER SECTION 35DD. THE ASSESSEES CASE BEFORE TH E ASSESSING OFFICER AS WELL AS THE CIT(A) HAS BEEN THAT IN THE ACCOUNTS OF THE YEARS ENDING 31-3- 2003 AND 31-3-2004, DEMERGER EXPENSES AMOUNTING TO ` .6,81,525/- AND ` .25,82,884/- RESPECTIVELY, HAVE B EEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. IN THE REVISED RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR, THE AFORESAID AMOUNT OF ` .6,81,525/- INCURRED FOR LTHE PERIOD RELEVANT TO ASSESSM ENT YEAR 2003-2004 WAS CLAIMED BEING 1/5 TH OF THE DEMERGER EXPENSES OF ` .32,64,410/- (WHICH INCLUDES TO ` .25,82,884/-) AS DEDUCTION UNDER SE CTION 35DD. THE ASSESSING OFFICER DID NOT GRANT DEDUCTION UNDER SECTION 35DD IN RESPECT OF AMOUNT OF ` .5,16,577/- BEING 1/5 TH PERTAINING TO THE ASSESSMENT YEAR 2004-2005 ON THE GROUND THAT THE SAID EXPENSES WERE NOT DEBITED IN ACCOUNTS FOR THE ASSESSMENT YEAR 2003-2004. 35.1 BEFORE THE CIT(A), IT WAS SUBMITTED THAT 1/5 TH OF THE EXPENDITURE INCURRED SHOULD BE ALLOWED FOR EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR FOR WHICH AMALGAMATION OR DEMERGER TAKES PLACE. LEARNED CIT(A) DULLY APPRECIATED THE CONTENTION OF THE ASSE SSEE AND THE PROVISIONS OF LAW AND ALLOWED THE DEDUCTION BY OBSERVING AND HOLDING AS UNDER :- ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 34 8.6 I HAVE CONSIDERED THE SUBM ISSIONS MADE BY THE APPELLANT. THE PLAIN READING OF THE SECTION PR OVIDES A CLEAR VIEW OF THE ABOVE FACTS AND I AM OF THE OPINION THAT AS PER SECTION 35DD, WHERE AN ASSESSEE, BEING AN INDIAN COMPANY, INCURS ANY EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF AMALGAMATION OR DE-MERGER OF AN UNDERTAKING, THE ASSESSEE IS TO BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDITURE FOR EACH OF THE FIVE SUCCESSIVE PREVIOUS YEARS BEGINNI NG WITH THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR DE-MERGER TAKES PLACE. THE SAID SECTION NO WHERE REQUIRES THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED IN THE YEAR IN WHICH TH E DE-MERGER ETC HAS TAKEN PLACE. HENCE, THE APPELLANT IS RIGHT IN CLAIMING 1/FTH OF THE SAID EXPENDITURE FROM A.Y. 2003-04 BEING THE YEAR IN WHICH THE DE- MERGER TOOK PLACE. IF ANY OTHER VIEW IS TAK EN, THE APPELLANT WOULD NOT BE ABLE TO CLAIM DEDUCTION IN RESPECT OF THE FIFTH YEAR WITH REGARD TO EXPENSES INCURRED IN THE ASSESSMENT YEAR 2004-2005. ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO IS DELETED. 35.2 LEARNED AR REITERATED THE SAME SUBMISSION AS WAS MADE BEFORE THE CIT(A) AND ON THE OTHER HAND, LEARNED CITDR RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER. 36 . AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS AND ALSO THE FINDING THE ASSESSING OFFICER AS WELL AS THE CIT(A), WE COME TO THE CONCLUSION THAT THE PROV ISION OF SECTION 35DD IS ABSOLUTELY CLEAR WHICH PROVIDES THAT IF AN ASSESSEE INCURS AN EXPENDITURE ON OR AFTER 1 ST DAY OF APRIL, 1999, WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF AMALGAMATION OR DEMERGER OF AN UNDERTAKING, THE ASSESSEE SHALL BE ALLOWED THE DEDUCTION OF AN AMOUNT EQUAL TO ONE-FIFTH OF SUCH EXPENDITURE FOR EACH OF FIVE SUCCESSIVE PREVIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR DE-MERGER TAKES PLACE. HENCE, 1/5 TH OF THE EXPENDITURE HAS TO BE ALLOWED IN THIS YEAR WHICH IS BEGINNING OF THE PREVIOUS YEAR IN WHICH DE-MERGER HAS TAKEN PLACE. THUS, THERE IS NO ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 35 SUBSTANCE IN THE GROUND RAISED BY THE DEPARTMENT AND ACCORDINGLY IT IS DISMISSED. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED . 37 . ITA NO.1622/MUM/2009(AY 2004-05)(BY ASSESSEE) : GROUND NO.1 , RELATES TO DISALLOWANCE OF EXPENDITURE SUNDER SECTION 14A INCURRED IN CONNECTION WITH THE EXEMPT INCOME. THIS ISSUE HAS BEEN DEALT WITH IN THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2000-2001 IN ITA NO.2825/2007, WHEREI N FOLLOWING THE DECISION OF THE EARLIER ORDER OF ITAT, IT HAS BEEN HELD THAT DISALLOWANCE SHOULD BE RESTRICTED TO 2% OF THE DIVIDEND INCOME . IN VIEW OF THE ABOVE, IN THIS YEAR ALSO, WE HOLD THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO 2% OF THE DIVIDEND INCOME AND ACCORDINGLY GROUND NO1 IS PARTLY ALLOWED. 38. IN GROUND NO.2 , THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF SUM OF ` .67,48,000/- OUT OF INTEREST PAID. THIS ISSUE HAS BEEN DEALT WITH IN THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2000-2001 IN ITA NO.2825/2007, WHEREIN THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOLLO WING THE DECISION OF THE EARLIER ORDER OF THE ITAT. IN VIEW OF THIS FACT, THIS ISSUE IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDI CATION. IN THE RESULT, GROUND NO.2 IS ALLOWED FOR STATISTICAL PURPOSE. 39. GROUND NO.3 RELATES TO DISALLOWANCE OF INTEREST OF ` .2,24,000/- OUT OF INTEREST PAID ON OTHER LOANS. THIS ISSUE TOO HAS BEEN RESTORED ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 36 BACK TO THE FILE OF THE ASSESSING OFFICER IN THE EARLIER ORDERS AND FOLLOWING THE SAME, THIS GROUND IS AL SO SET ASIDE AND SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRES H ADJUDICATION. IN THE RESULT, GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 40. GROUND NO.4 , IS AN ALTERNATIVE GROUND TO GROUND NOS.2 & 3, HENCE, THE SAME IS NOT ADJUDICATED AS THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. 41. GROUND NO.5 HAS NOT BEEN PRESSED BY THE LEARNED AR AND, THEREFORE, THE SAME IS TREATED AS DISMISSED. 42. IN GROUND NO.6 , THE ASSESSEE HAS CHALLENGED NON-DEDUCTION UNDER SECTION 36(1)(VA) IN RESPECT OF EMPLOYEES CONTRIBUTION TO THE PROVIDENT FUND PAID AFTER THE DUE DATE BUT WITHIN THE GRACE PERIOD AMOUNTING TO ` .1,19,879/-. THIS ISSUE HAS ALREADY BEEN DECIDED BY US IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2000-2001 IN ITA NO.2825/2007. IN VIEW OF THE FINDING GIVEN IN THE AFORESAID APPEAL, WE HOLD THAT THE DEDUCTION HAS TO BE ALLOW ED IN VIEW OF THE PROVISIONS OF SECTION 43B AS IT IS UNDISPUTED FACT THAT PAYMENTS HAVE BEEN MADE AFTER DUE DATE OF FILING OF THE RETURN AND THE SAME HAS TO BE ALLOWED. IN THE RESULT, GROUND NO.6 IS ALLOWED. 43. GROUND NO.7 HAS NOT BEEN PRESSED BY THE LEARNED AR AND, THEREFORE, THE SAME IS TREATED AS DISMISSED AS NOT PRESSED. ITA NOS : 2825/07, 2841/07, 532/09, 671/09 & 1622/09 37 44. IN GROUND NO.8 , THE ASSESSEE HAS CHALLENGED THE CLAIM OF DEDUCTION IN RESPECT OF WEALTH TAX PAYMENT AMOUNTING TO ` .1,82,721/-. THIS ISSUE HAS BEEN DECIDED AGAIN ST THE ASSESSEE IN ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2000-2001 IN ITA NO.2825/2007. IN VIEW OF THIS, GROUND NO.8 IS DISMISSED. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 45 . IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND DEPARTME NTAL APPEALS ARE ALSO PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THIS 15 TH DAY OF JUNE, 2012. SD/- SD/- (G.E. VEERABHADRAPPA) ( AMIT SHUKLA ) PRESIDENT JUDICIAL MEMBER MUMBAI, DT: 15 TH JUNE, 2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PKM